Rolling coverage of the latest economic and financial news
- BoE leaves interest rates on hold
- UK car sales drop 39.5% in January
- Worst start to a year since 1970
- UK construction output fell last month too
Sterling has hit a near nine-month high against the euro, as the prospect of imminent negative interest rates recedes.
The pound has risen over €1.139 to its highest point since last May, after the BoE gave banks six months to prepare for any cut below zero.
Markets were given some clarity on the negative rates debate. The Bank has indicated that it will take six months for the financial sector to prepare for such a move. The MPC were clear that it is not their intention to take rates lower, but it is worth preparing for the possibility in case it is needed in the future.
We do not expect the BoE to take rates into negative territory. In our view, they will remain on hold for the year. The economy should see a marked improvement in the coming months, which will change the tone of the debate for policymakers. Especially against a medium-term forecast for inflation that is close to the Bank’s target.
The Bank of England has dampened the prospect of cutting UK interest rates below zero in the next few months.
Following a consultation with UK banks, the central bank has concluded they would need six months to prepare for negative interest rates. Moving sooner than six months would lead to “increased operational risks”.
“The Prudential Regulation Authority’s engagement with regulated firms had indicated that implementation of a negative Bank Rate over a shorter timeframe than six months would attract increased operational risks,”
On the basis of firms’ responses to this exercise, the PRA understands that the majority of firms would be able to implement tactical solutions to accommodate a negative Bank Rate within six months, without material risks to safety and soundness.
Taking this into account, and consistent with the PRA’s primary statutory objective to promote the safety and soundness of individual firms, along with its insurance policyholder protection objective and secondary competition objective, the PRA considers that an implementation period of shorter than six months would attract increased operational risks and could adversely impact some firms’ safety and soundness and the PRA’s wider statutory objectives.
– cuts 2021 GDP growth forecast to 5% from 7.5% in November
– sees inflation accelerating 2.1% in 2 years
– to start work on tiered system in case rates cut below zero
– says banks should start preparations for negative rates if needed pic.twitter.com/fDhtwM4YYt